Category: Midweek Economic Briefing

Top of the News: In David Brin’s 1985 science fiction novel, The Postman, a drifter amid the destruction of nuclear war finds a letter carrier’s uniform. As he wanders the small communities left in the Northwest, he finds that he is a symbol of hope to people that a United States still exists. And what was just a piece of clothing becomes much more, both for the drifter and the people he helps (and the book was much better than the Kevin Costner film).

So I’m probably becoming an old codger in finding it sad that the Postal Service wants to end Saturday mail delivery and close post offices. Yes, email means people are sending fewer letters, and there’s a dreaded $7 billion deficit (a few days of operations in our foreign wars or the corporate welfare for the big banks).

But it was telling in the book that the symbol of unity, of something more than desperation and “devil take the hindmost,” was not a military uniform or a banker’s suit. It was the letter-carrier’s jacket. Through the history of the republic, the Post Office was one of the biggest uniters and representations of “we” vs. just “me.” And now, like the art of the letter, it must fade away. Everything must be “run like a business” now, and the Postal Service lacks the lobbyists of Wall Street and the big polluters, who can conceal their real costs to society.

Oh, yes…”going postal,” that sign of dysfunctional government. It was far outweighed by private-sector workplace shootings, which continue apace even as the Postal Service has become more safe. Somehow my Facebook page won’t replace the friendly and competent carrier I see every day, Rhonda Jeffreys. For now, she knits together Belltown and it’s a treasure.

Top of the News: The sober business of putting the brakes on Washington state’s fiscal troubles — a drag on the entire economy — is rapidly becoming the Olympia Laff Riot. Sales taxes, cigarette taxes and closing “loopholes and exemptions” (do the august solons mean Boeing?) is the plan.

Lawmakers, of course, are working in an environment where for 30 years Americans have been conditioned to think all taxes are bad and taxes must only be cut. So nibbling around the edges is apparently all that can happen. Sales taxes are especially regressive, hitting lower-income people at a time when their plight has been aggravated by the worst unemployment since the Great Depression. And why do I fear some of these tightened loopholes will most affect blue-collar sectors?

In a more ideal world, this would be the time for a serious discussion about the appropriate revenue structure needed to both sustain a diverse, complex and urbanized state, while maintaining its high-quality economy. This would include the Great Reset reality check: No new bubble is going to prevent sustained unemployment and economic and social ills. That discussion won’t happen. Nor will Washingtonians discuss an income tax (!!). I would say, let the YOU SOCIALIST! comments begin, but, as with the destructive Prop. 13 in California, many liberals quietly like the status quo, too.

Top of the News: President Obama has named a bi-partisan panel to make recommendations about cutting the federal deficit. This should be interesting in an era where the Senate is broken, the old GOP that held moderates and even liberals is gone, and the Democrats are running away like hysteric teenagers in a slasher film despite their majority.

It is not an original thought but one worth repeating: FDR, contrary to popular myth, didn’t like deficits and was dismissive of Keynes (who returned the feeling). So when the Depression seemed to be easing in 1936-37, Roosevelt pulled back on the New Deal. The economy predictable fell into serious recession. Despite today’s electronic sound machine, the Obama stimulus has worked to prevent another Depression, and the non-partisan Congressional Budget Office says it was responsible for 800,000 to 2.4 million jobs last year. It wasn’t perfect: Given the lost GDP from the crash, it should have been bigger.

New-born deficit hawks, of course, want to tap into the rage and fear of average Americans who face joblessness, foreclosures and are at the mercy of ever-rising costs from for-profit health insurers. But unless the government acts with energy to stave off depression, including helping struggling states, the deficit will only grow. This is the real danger of deficit hysteria.

Long-term, the current deficit isn’t sustainable — but it won’t continue at these levels unless Washington makes a 1937-style mistake. Yes, reforms are needed. Two that are rarely discussed: raising taxes on the rich (since they obviously aren’t creating jobs, a la the conservative argument, and they created more jobs when rates were higher), and the unsustainability of our military commitments. Obama said everything will be on the table. Really?

Top of the News: Commerce Secretary Gary Locke promised more money for export promotion in a speech last week before the National Press Club, all part of a new National Export Initiative.

“Even amid the last decade’s speculative mania, exports have remained an integral part of our economy,” he said. “Last year, they accounted for 11 percent of our GDP, which is almost three times as much as just 50 years ago. Exports support nearly 10 million jobs in America and almost seven million jobs in manufacturing–and manufacturing jobs pay on average 15 percent more than the average wage. And for every $1 billion in exports, 6,250 manufacturing jobs are created or supported.”

The former Washington governor added: “But while the U.S. is a major exporter, we are underperforming.”

The details of the administration’s plan to help correct this are worth reading. Notably absent is how American exports can be improved in China, with its currency manipulation and increasing stealth protectionism. Without addressing this key issue, the destabilizing imbalances between the two most important economies in the world will continue.

Top of the News: Nevermind that he’s 48 years old, Treasury Secretary Tim Geithner looks like the kid you wanted to beat up in high school — even if you were a peaceful nerd who couldn’t even get a prom date. If only that were his biggest problem.

Geithner is testifying before Congress today on the bailout, specifically the government allowing AIG’s big-bank “counterparties” to be made whole on their risky swindles — oh, I mean “innovative financial contracts” — thanks to taxpayer money. So far, the kid is holding his own, defending, denying and deflecting.

Geithner was president of the New York Fed during the panic, one of the three most important players in the rescue, along with Hank Paulson and Ben Bernanke. It stretches credulity for him to claim ignorance about specifics of the AIG talks, especially about why no effort was made to negotiate for lower payouts to the banks, as was being done in private deals. Worse, the feds tried to keep the backscratch between D.C. and Goldman Sachs et al secret.

How long before he’s thrown under the Change Bus: six weeks or six months?

Top of the News: The stock market has become such a stoned-in-the-dorm-on-derivatives place in recent years that it’s no longer an indicator of much of anything but the day’s casino payout and hidden trends such as the carry trade. (Captain Greenspan Renault: “I’m shocked, shocked to find that gambling is going on in here!” Your winnings, sir. “Oh, thank you very much.”). Today is different.

Stocks nosedived after Chinese authorities did an about-face and ordered banks to temporarily halt lending. This is the starkest evidence yet of the dangerous asset bubble that has been building in China, a result of a stimulus that relied heavily on pushing money out the door of state banks into state-controlled industries and elsewhere. One of the biggest danger zones is in — surprise! — real estate, as well as stocks.

With the U.S. economy so badly damaged, economists had hoped that China could lead the world out of recession. That won’t happen if Chinese regulators are too late to avoid a bubble collapse. The consequences for trade-dependent Washington state would be nasty, too.

And remember, the imbalances between China and the U.S. haven’t been worked out by the downturn — which is one of the few good things recessions are supposed to do. China’s reserves climbed to $2.4 trillion in the fourth quarter, vs. $1.9 trillion a year earlier.

Top of the News: Washington gets generally good marks in the new Western Blue Chip economic forecast.

Economists polled by the forecast, based at Arizona State University’s W.P. Carey School of Business, expect personal income here to grow 4 percent and single-family housing permits to increase 32 percent in 2010. Population is seen growing 1 percent. Employment: down 0.2 percent.

It’s among the best in the West. You can check out the comparisons here. The dangers to the scenario (and this is me writing): uncertain national recovery and the ongoing danger of a double-dip recession.

Top of the News: Washington grew 13 percent from 2000 to 2009, adding more than 770,000 people, according to new data from the Census Bureau.That compares with 9.1 percent for the nation. State growth slowed to 1.5 percent from July 2008 to July 2009 as the recession hit harder (U.S. growth 0.9 percent).

I”m not of the Sun Belt school that raw population increases are the prime measure of economic success. Obviously you don’t want shrinkage, as is happening in Michigan. But too much growth is very expensive on infrastructure, schools, etc. — often forcing stretched governments to push those costs into the future, digging a deeper hole.

Also, the quality of the growth matters. Young, educated, tech-savvy newcomers will give a place more of a boost than retirees (no offense). So Washington seems not too cold, not too hot, about right — although I’m sure too hot for natives and preservationists (I sympathize). Not bad for a place with such a “bad business climate.”

Top of the News: Now that the 787 Dreamliner has made a successful first flight, let me venture into the mine field. Back to Boeing’s decision to place a second assembly in North Charleston, S.C., and try to make it stand independently of the Puget Sound.

As a former manager, I’m interested in actionable lessons rather than useless blame. This is a conversation we need to have. But, as I’ve written, we’re not going to lower our living standards to those of the South, or for that matter our values. So what can we usefully learn?

Our relationship with today’s Boeing has become like the classic Far Side cartoon. What we say to dogs: “Okay, Ginger, I’ve had it! You stay out of the garbage. Understand, Ginger? Stay out of the garbage or else!” What dogs hear: “Blah blah, Ginger. Blah blah blah blah blah Ginger blah blah blah…”

Top of the News: Northrop Grumman’s threat to pull out of bidding for the Air Force tanker contract falls into the “I’ll believe it when I see it” department. If it comes true and Boeing is the sole player in the process, it would be very good news for the Puget Sound, with the $35 billion worth of planes being built in Everett.

Northrop has teamed with Airbus parent EADS to build the tankers off an A330 in Alabama. The idea of Airbus getting what would essentially be a federally subsidized factory in America makes Boeing executives as angry as, well, the machinists’ union, maybe more so. Losing the tanker contract would be another blow to growth of Boeing work here.

Still, Northrop is also playing a political game, demanding major changes to the Pentagon’s parameters for the tanker bidding, and you can bet it will have the support of Alabama’s congressional delegation. Here’s another gut check for Washington state leaders.